High Court Upholds CEGAT Decision in Favor of EOU: No Excise Duty Due

The High Court upheld the decision of the CEGAT in Appeal No. E/1463/1998, ruling in favor of the respondent, a 100% Export Oriented Unit (EOU) in Granite. The Court found no substantial question of law to intervene and rejected the Central Excise Reference Case under Section 35 of the Central Excise Act. The Tribunal's determination that no Excise duty was payable due to the absence of proven sales in the Domestic Tariff Area and discrepancies in stock verification was affirmed, emphasizing the distinction between Excise duty and Customs duty for EOUs.

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Issues:
Central Excise Reference Case under Section 35H(1) of the Central Excise Act - Interpretation of exemption Notification No. 125/84-C.E. for goods manufactured by a 100% EOU unit and sold clandestinely in India.

Analysis:
The case involves a 100% Export Oriented Unit (EOU) in Granite that had permission to sell 5% of its product within the Domestic Tariff Area (DTA). The Original Authority alleged a shortage of stock and excess finished products, leading to a demand for differential Excise duty. The respondent challenged this demand in Appeal No. E/1463/1998 before the CEGAT, which was allowed in their favor. The reference to the High Court was sought in relation to this order.

During the proceedings, the respondent argued that the calculation of stock was incorrect, emphasizing the difference between gross and net quantity for Excise duty purposes. The CEGAT noted that the levy of Excise duty on a 100% EOU should only occur if instances of sale in the DTA are proven. In this case, no such sales were demonstrated, and discrepancies in stock verification were highlighted.

The Tribunal also pointed out a serious defect in the stock verification process, where wastage was not accounted for, leading to an incorrect demand for duty. It was clarified that Customs duty, not Excise duty, is payable by a 100% EOU, as the legal regimes and parameters for each duty differ significantly.

Regarding the requirement for a reference under Section 35 of the Act, the High Court found no substantial question of law to warrant intervention. The Tribunal's decision was upheld as it correctly identified the factual inaccuracies in the demand for Excise duty. Consequently, the Central Excise Reference Case was rejected by the High Court.

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